What is our fee?

The agreement between our clients and us is considered an interesting topic. Both clients, HR & hiring managers, as well as candidates ask or show indirect interest. Completely just so because the contract has impact on the process. Below you can find the fundamentals of agency contracts and some of my thoughts about the topic.

In finding the candidate for a permanent position the following clauses are, in my opinion, the most important:

• Payment of an upfront fee (retainer). This fee can cover advertisement or other out of pocket expenses. It can cover the first investments in hours invested;
  Guarantee clause. If the candidate leaves within a certain period of time, six months for example, and the client is not to blame, the recruiter finds a replacement. Some clients demand reimbursement of the fee, personally I think that is unacceptable;
• Fee level. In most projects the fee is a percentage of the salary of the placed candidate. So-called “fixed fees” can be an appealing alternative. My policy is: if I show I cannot do the job, I don’t want the money of the client;
• Cancellation fee. If the recruiter invests and does not get the chance to show he can be successful in an agreed span of time, he sends an invoice for hours spent.
• Exclusive or non-exclusive agreement (contingency vs retainer based). Is the recruiter the only one working on the assignment or does the client and/or other recruiters work on the assignment?

In my opinion, exclusive assignments should come with a guarantee clause, cancellation fee and a retainer. Within a certain time frame, three weeks for example, the recruiter is able to scan the market and make a comprehensive presentation of the best the market has to offer.
A non-exclusive agreement is, most of the time, no-cure no-pay. The risk is completely at the side of the recruiter, a guarantee, retainer and cancellation fee is not applicable. Examples where this type of assignment works best if speed is of essence or if the client or other recruiters have failed finding the proper candidate. Downside of this type of project is that the recruiter does not have an overview of the process as a whole.

In the part of the labour market where junior and medior candidates are active, non-exclusive assignments are more common. The senior part of the market has exclusive assignments. In the Champions League of executive recruitment the following fee structure is often used: the fee is one third of the salary of the placed candidate. At the start of the process the first one third of the expected fee is invoiced, when the candidate presentation is done the second and the final after the candidate is hired. Both in absolutes as well as relatives these market players get most.

This is a first glimpse in how our contracts work. If you are interested I can dig in later. I want to close with two remarks. If a recruiter invoices both as an outplacement coach as well as recruiter, I doubt his ethical standard. Is he positive because the candidate is the best match or because he can charge twice for the same effort?

What intrigues or sometimes even frustrates me, is that recruitment is often considered a commodity. In a world where many CEOs state that human capital is their most important asset, there are too few about the quality of the recruiter. What about his track record, education, service portfolio and view on the profession? I look forward to your thoughts on the topic.

Pieter de Kiewit